What is Churn in Customer Success?
The term “churn” is most prevalent in the subscription economy. Which refers to the loss of customers who don’t resign their contract at the time of their renewal. Now, Customers don’t churn overnight. It’s a decision that they make long before they actually churn. It’s your job as a business to find out those red flags and early-warning signals by paying close attention to their behavior. Yet, many businesses fail miserably at this.
What are the three main types of churn?
There are 3 types of customer churn that every SaaS business should measure.
- Account Churn
- User Churn
- Revenue Churn
It is important that we understand each one of them, else we are likely to be blinded by half data.
Account churn is where you see accounts canceling SaaS a product.
If you are seeing Account churn, but User and Revenue growth, it is likely that a certain type of customer is rejecting the product. Chances are that your sales team is acquiring customers that are unable to get the value they were promised during the sales cycle of the product. This might be linked to a particular CSM as well (but usually not).
User churn is where users of your SaaS product are on a decline. This is could in spite of stable Account and Revenue growth.
User churn can be a direct result of Account churn. But if this is happening despite Account growth, then requires deeper investigation. Since this will eventually lead to revenue churn, even if not immediately. Poor license utilization is another proxy for this case. You might spot a certain type of user or role not using the product consistently. It might be worth sitting down with your product manager to analyze which modules and features are being used and which ones are not being used. Think of product stickiness from every user (role) perspective.
Revenue churn is the direct loss of recurring revenue. This is usually a result of Account and/or User churn. There might be one exception where you’ll see revenue churn despite Account and User growth. And i.e. when the price per seat (aka user) gets reduced. Or ARPU (aka APRA) declines. This will make an interesting case. You can do a cohort of Price per seat and ARPU to keep an eye on that. Note that even aggressive discounting might lead to this, even if you have not lowered SaaS plan prices.
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